Wednesday January 18, 2006 - 14:42:37 GMT
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Forex Market Commentary and Analysis (18 January 2006)
The euro notched marginal gains vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2150 level and was supported around the $1.2075 level. Technically, today’s intraday low is just above the 76.4% retracement of the move from $1.2200 to $1.1640. Many data were released in the U.S. today including November Treasury International Capital portfolio flows that confirmed US$ 89.1 billion of foreign security purchases two months ago, down from October’s downwardly revised figure of $104 billion but still above estimates and more than enough to cover the current account deficit two months ago. Other data released today saw the headline December consumer price index at -0.1% while the ex-food and energy component came in at +0.2%, consistent with expectations. On an annualized basis, headline CPI is up 3.4% y/y and core CPI is up 2.2% y/y. The December data were relatively tame but there is currently a spike in global energy prices given geopolitical events in Nigeria and Iran and these may contribute to a renewed surge in consumer-level inflation. Traders await comments today from Richmond Fed President Lacker along with the Fed’s Beige Book. Dealers are keeping a close eye on the inverted U.S. Treasury complex because the five-year Treasury is now yielding less than the short-term federal funds rate. Some economists believe an inverted yield curve is a harbinger of economic recessions. It was announced that Fed Chairman-nominee Bernanke will deliver his first report to Congress on 15 February regarding monetary policy. In eurozone news, EMU-12 industrial output climbed 1.3% m/m in November and gained 2.6% y/y. Euro offers are cited around the US$ 1.2220 level.
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥114.80 level after encountering offers around the ¥115.85 level. Technically, today’s intraday high was right around the 50% retracement of the move from ¥118.15 to ¥113.40. The big news out of Japan tonight was the early closure of the Tokyo Stock Exchange after the volume of trades overwhelmed its computer system’s capacity, the first such happening since 1949. This followed yesterday’s news about legal problems and fraud investigations at website operator Livedoor. Data released in Japan today saw the November leading economic indicators index downwardly revised to 54.5 from 60.0 while the coincident index printed at 37.5. The Nikkei 225 stock index shed 2.94% to close at ¥15,341.18. Dollar bids are cited around the ¥114.50/ ¥113.65 levels. The euro weakened vis-à-vis the yen as the single currency tested bids around the ¥139.20 level and was capped around the ¥140.10 level. Technically, today’s intraday high was just above the 76.4% retracement of the move from ¥140.85 to ¥137.10. The British pound and Swiss franc came off vis-à-vis the yen as the crosses tested bids around the ¥202.75 and ¥89.90 levels, respectively. The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 8.0685 on the exchange-traded market, up from CNY 8.0665 yesterday. In the over-the-counter market, the greenback closed at CNY 8.0692. Data released in China today reported China’s productivity growth has averaged about 8.7% since 2000, the strongest level in Asia.
The British pound lost marginal ground vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7600 figure and was capped around the $1.7705 level. Technically, today’s intraday high was right around the 76.4% retracement of the move from $1.7900 to $1.7045 while today’s intraday low was right around the 38.2% retracement of the move from $1.8495 to $1.7045. Data released in the U.K. today saw ILO unemployment up 111,000 in the three months to November, coincident with tame wage pressures. This increase in unemployment is the largest in some thirteen years. Additionally, it was reported that RICS house prices rose in December for the second consecutive month. Outgoing Bank of England Deputy Governor Large was quoted in the Financial Times as saying investors may be assuming too much risk from overvalued markets. Cable offers are cited around the US$ 1.7740 level. The euro moved marginally higher vis-à-vis the British pound as the single currency tested offers around the £0.6865 level and was supported around the £0.6845 level.
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2730 level after encountering selling pressure around the CHF 1.2835 level. News of possible further attacks on Nigeria’s oil distribution network by rebels continues to cause a move higher in crude oil prices along with escalated tension between the global community and Iran over the latter’s reconstituted nuclear program. The Swiss franc may benefit from safe-haven flows as a result. Dollar bids are cited around the CHF 1.2635 level. The euro and British pound weakened vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.5460 and CHF 2.2510 levels, respectively.
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